Hungary’s CPI inflation accelerates in September, might rise above 1 pct in October

Hungarian consumer price index inflation accelerated in September after declining in August. As expected, the data showed that the nation’s CPI inflation came in at 0.6 percent year-on-year in September, jumping from -0.1 percent year-on-year in August, noted KBC Market Research. Moreover, the core inflation also accelerated in September to 1.4 percent year-on-year from 1.2 percent year-on-year in August.

The rise in inflation has been mainly driven by the base effect as 2015’s decline in oil price began to drop out from the base and thus the fuel price restrained the inflation less than in earlier months. Also, the gradual rise of market service price was an important effect, owing to the stable and relatively solid domestic demand, stated KBC Market Research.

Looking ahead the consumer price index might accelerate further till the start of 2017 and might come in above 1 percent level in October for the first time since September 2013.

“We expect year-end CPI at 1.7 percent Y/Y – mainly thanks to base effect coming from oil price development –, while the average inflation might be 0.4 percent Y/Y in 2016”, added KBC Market Research.

The CPI is greatly impacted by VAT reduction in next year that might ease the headline print by around 0.6 percentage points. Thus the average inflation is expected to be around 2 percent year-on-year in 2017. The inflation print of September does not have main surprise factors, thus it might not alter the Hungarian monetary policy stance, according to KBC Market Research.

The National Bank of Hungary might underline that inflation might reach its target only in mid-2018, which affirms its view that no change in base rate is needed in the next 18 months. Furthermore, the central bank has already moved to a balance sheet driven monetary policy for simple rate change policy. This signifies that if they see the requirement of rate cut, the NBH might further drop the limit of three-month deposit, added KBC Market Research.